Term Deposits vs Fixed Deposits: Understanding the Key Differences and Benefits

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In this day and age, there are plenty of investment options available for investors in the market. Two of these include term deposits and fixed deposits. Being two of the most popular investment plans available, it makes sense that investors would be drawn to them. 

However, as similar as they may sound, there are quite a few differences between these investment plans. But before we get into the whole term deposits vs fixed deposits debate, we need to first understand what each of the investment plans is actually about and what their features are.

What are Term Deposits?

The term deposit investment plan is offered by several financial institutions and banks as well. This is a fixed-period investment option in nature, having a shorter maturity period. This period could range anywhere from 1 week to 5 years.  Term deposits do, however, have a minimum investment/deposit requirement, but the returns that they guarantee have fixed interest rates.

Features of a Term Deposit

To help you further understand what term deposits are, here are some of their main features:

  • Term deposits have a fixed rate of interest for the investment period
  • For initial deposits that are bigger, the interest rates are higher
  • Term deposits happen to be one of the safest investment plans as they are risk-free and are backed by the NCUA or FDIC
  • The minimum deposit amount for a term deposit is low 
  • Term deposits have various maturity timelines. This helps investors have variations between their termination dates.

What are Fixed Deposits?

FDs or fixed deposit accounts are accounts that allow investors to invest a lump sum amount for a fixed amount of time with a fixed interest rate. With a lock-in period ranging from one month to 10 years, the interest earned on the deposit amount is determined by this tenure. Even though FDs do provide the benefit of withdrawal before the maturity of the investment, there are penalty charges that are levied. 

Features of Fixed Deposits:

Here is a list of some of the main features of fixed deposits for you to understand them better. 

  • FDs offer guaranteed and a fixed rate of interest for the entire tenure making them reliable investment plans
  • Investors can also avail a load against up to 90% of the principal amount invested in the FD
  • Investors can choose the tenure of their FD keeping in mind their financial goals from a minimum of 7 days to 10 years
  • The interest gained is based on compounded interest which means that both the principal amount and the accumulated interest are compounded

Term Deposits Vs Fixed Deposits:

Here’s to getting down to the nitty-gritty of it. Let us now have a look at the major differences that exist between these two investment plans.


Term Deposits

Fixed Deposits

Interest Rates

Based on market conditions interest rates can either be fixed or variable in nature

All through the investment tenure, FDs offer fixed interest rates


Minimum-Few weeks

Maximum-5 years

Minimum-7 days

Maximum - 10 years

Best for

Short-term investors

Mid and long-term investors

Penalty on premature withdrawal




More flexible

Less flexible

Benefits of term deposits Vs fixed deposits

Now having seen the major differences that exist between these two plans, let’s have a look at their benefits too.

Term Deposits:

  • Can earn greater interest on a deposit upon promising to not withdraw the amount before maturity
  • Interest rate higher than usual savings or checking account
  • Low-risk investments with guaranteed returns 

Fixed Deposits:

  • Can choose whether to receive the interest earned monthly, quarterly or annually.
  • Can set up automatic renewal at maturity for the same tenure and interest rate.
  • Tax benefits of up to ₹1.5 lakhs for investments made in 5-year tax-saving FDs.

The Bottom Line:

Term deposits and fixed deposits are both excellent investment options for those seeking stable and secure returns. Understanding the basic differences between the two can help you make an informed decision that aligns with your financial goals.

Always compare interest rates, tenure options, and withdrawal terms before making your choice. By carefully evaluating these factors, you can choose the investment option that best suits your needs and helps you achieve your financial objectives.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here https//bit.ly/3Tcsfuc

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